Madang Development Corporation Ltd v Rabtrad Madang Ltd (APL) [2006] PGNC 89; N3091 (30 October 2006)

N3091

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 225 OF 2006

BETWEEN:

MADANG DEVELOPMENT CORPORATION LIMITED
Plaintiff

AND:

RABTRAD MADANG LIMITED (APL)
First Defendant

AND:

RABTRAD NIUGINI LIMITED
Second Defendant

AND:

G.LITZ & CO. LIMITED
Third Defendant

Waigani: Davani, J.
2006: 5, 29 June, 30 October

INJUNCTION - injunction taken out to restrain a sale - but sale complete by settlement and exchange of title deeds - injunction must be set aside as course of conduct complete - s. 142 (4) of Companies Act.

CONTRACT OF SALE - what is completion - occurrence of settlement and exchange of title deeds and purchase price in accordance with terms of contract signifies completion.

Cases cited:
Richards v Price (1927) 2 KB

Counsel:
W. Frizzel, for the defendants
E. Mai, for the plaintiffs

RULING

30 October, 2006

1. DAVANI, J: This is an application by way of notice of motion filed on 16th May, 2006 by Warner Shand Lawyers, to set aside ex parte orders made on 12 April 2006, application made pursuant to O. 12 R. 8 of the National Court Rules (‘NCR’) and sections 18, 19 and 142 of the Companies Act 1997 (the ‘Act’).

2. Order 12, Rule 8 of the NCR reads:

"8. SETTING ASIDE OR VARYING JUDGMENT OR ORDER

(1) The Court may, on terms, set aside or vary a direction for entry of judgment where notice of motion for the setting aside or variation is filed before entry of the judgment.

(2) The Court may, on terms, set aside or vary a judgment -

(a) where the judgment has been entered pursuant to Division 3 of O.12 (default judgment); or

(b) where the judgment has been entered pursuant to a direction given in the absence of a party, whether or not the absent party had notice of trial or of any motion for the direction; or

(c) when the judgment has been entered in proceedings for possession of land pursuant to a direction given in the absence of a person and the Court decides to make an order that the person be added as a defendant,

(3) The Court may, on terms set aside or vary an order -

(a) where the order has been made in the absence of a party, whether or not the absent party is in default of giving a notice of intention to defend or otherwise in default, and whether or not the absent party had notice of motion for the orders; or

(b) where notice of motion for the setting aside or variation is filed before entry of the order.

(4) In addition to its powers under sub-rules (1), (2), (3) of this Rule, the Court may, on terms, set aside or vary any order (whether or not part of a judgment) except so far as the order determines any claim for relief or determines any question (whether of fact or law or both) arising on any claim for relief and excepting an order for dismissal of proceedings or for relief and excepting an order for dismissal of proceedings or for dismissal of proceedings so far as concerns the whole or any part of any claim for relief.

(5) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order."

3. Section 18, s.19 and s.142 of the Act reads;

"18. VALIDITY OF ACTIONS

(1) No act of a company and no transfer of property to or by a company is invalid merely because the company did not have the capacity, the right, or the power to do the act or to transfer or take a transfer of the property.

(2) Subsection (1) does not limit any of Sections 142, 143, 147 and 148.

(3) The fact that an act is not, or would not be, in the best interest of a company does not affect the company to do the act."

"19. DEALINGS BETWEEN COMPANY AND OTHER PERSONS

(1) against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that -

(a) this Act or the constitution of the company has not been complied with; or

(b) a person named as a director of the company in the most recent notice received by the Registrar under s. 137 -

(i) is not a director of a company; or

(ii) has not been duly appointed; or

(iii) does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise; or

(c) a person held out by the company as a director, employee or agent of the company-

(i) has not been duly appointed; or

(ii) does not have authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise; or

(d) a person held out by the company as a director, employee, or agent of the company with authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company does not customarily have authority to exercise, does not have authority to exercise that power; or

(e) a document issued on behalf of a company by a director, employee, or agent of the company with actual or usual authority to issue the document is not valid or not genuine,

Unless the person has, or ought to have, by virtue of his position with or relationship to the company, knowledge of the matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be.

(2) Subsection (1) applies even though a person of the kind referred to in any of Paragraphs (b) to (e) (inclusive) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired property, rights, or interests from the company has actual knowledge of the fraud or forgery."

"142. Injunctions

(1) The Court may, on an application under this section, make an order -

(a) restraining a person who is engaging in or proposes to engage in conduct that is or would contravene the constitution of the company or this Act from engaging in that conduct; or

(b) requiring a person who has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that he is required to do by the constitution of the company or this Act, to do that act or thing.

(2) An application may be made by -

(a) the company; or

(b) a director or shareholder of the company; or

(c) an entitled person; or

(d) the Registrar.

(3) Where the Court makes an order under subsection (1), it may also grant such consequential relief as it thinks fit.

(4) An order may not be made under this section in relation to conduct or a course of conduct that has been completed.

(5) The Court may, at any time before the final determination of an application under subsection (1), make, as an interim order, any order that it is empowered to make under that subsection.

(6) Where an application is made to the Court under subsection 91) for the grant of an injunction under this section, the court shall not require the applicant, as a condition of granting an interim injunction, to give any undertaking as to damages."

4. On 12 April, 2006, the plaintiff obtained ex parte orders restraining the defendants from dealing with real property; assets referred to in the schedule to the originating summons being, inter alia, properties the subject of contracts which I will later set out in detail. That application was supported by the affidavit of Florian Bahin sworn on 11 April, 2006 and the affidavit of Betty Liriope sworn on 10 April, 2006.

5. The application of the second defendant is supported by the two affidavits of Ronald Ringuet sworn on 16 and 18 May, 2006.

6. The second defendant will also rely on the affidavit of Gerd Litz sworn on 19 May, 2006. He is the third defendant’s principle shareholder and director.

7. In its originating summons filed on 16 April, 2006 and subsequently amended and filed on 16 May, 2006, the plaintiff seeks, inter alia, various declarations and orders restraining the defendants from dealing with assets listed in the schedule to the amended originating summons, on the allegation that the shareholders of the first defendant did not pass a resolution pursuant to s.110 of the Act, concerning sale of those assets and that they failed to act in good faith and in the plaintiff’s best interests thereby breaching s.112 of the Act. I have heard also that the plaintiff has placed caveats over several properties the subject of this proceeding.

8. Sections 110 of the Act states that a company shall not enter into a major transaction unless the transaction is approved by special resolution or contingent on approval by special resolution.

9. And a ‘major transaction’ is also defined therein.

10. Section 112 relates to duty of directors to act in good faith and in the best interest of the company.

Undisputed facts

11. On 30 September, 1999, Rabtrad Niugini Limited was amalgamated with Andersons Foodland Limited, done pursuant to s.237 of the Act. A true copy of the Certificate of Amalgamation is in evidence before me. It is necessary that I set out the terms of the certificate which reads;

"CERTIFICATE OF AMALGATION

I certify that the amalgamation of

ANDERSONS FOODLAND LIMITED,
RABAUL TRADING COMPANY LIMITED
RABTRAD NIUGINI LIMITED
RTC WORLD TRAVEL LIMITED
WOO PROPERTIES LIMITED
RABTRAD NIUGINI COFFEE LIMITED

Took effect on 30 September 1999
And the name of the amalgamated company is
ANDERSONS FOODLAND LIMITED
With company registration number 1-250
Given under my hand and seal on 30 September 1999

Signed

W.L. Marum
Registrar of Companies"

12. The plaintiff (‘MDC’) and the second defendant (now to be described as Andersons Foodland Limited or ‘Andersons’) each own 50 percent of the issued shares in the first defendant (‘Rabtrad Madang’).

13. Rabtrad Madang entered into contracts for sale and purchase of nine (9) portions of the land with the third defendant (‘G. Litz’) on 7 November, 2005.

14. These contracts were completed on 15 February, 2006 by the payment of K4 million by G. Litz to Rabtrad Madang.

Plaintiff’s case

15. The plaintiff MDC obtained ex parte interim injunctive orders on 13 April, 2006, to restrain the completion of sale of assets which are attached to the schedule to the amended originating summons filed by the plaintiff. I set out in full this list;

"SCHEDULE

List of assets of the First Defendant comprising the sale of assets to the Third Defendant.

1. Property Allotments 5, 6 and 7 Section 22, comprising of a cash & carry shop located at Tilon Street, Madang Town.

2. Property Allotment 8, Section 24, Madang, located at the corner of Modilon road and Badaten road, Madang Town.

3. Property Allotment 19, Section 27, Madang, comprising of a service center located in Madang Town.

4. Property Allotments 20 and 21, Section 27, Madang, comprising of a wholesale and office complex located on Modilon road, Madang Town.

5. Property Allotments 2 and 7, Section 5, Madang, comprising of two vacant blocks in Madang Town.

6. Property Allotments 26 and 27, Madang, comprising of two vacant blocks in Madang Town."

16. The MDC now seeks to extend these interim injunctive orders to the date of the hearing of the substantive matter, claims set out in the plaintiff’s amended Originating Summons. They also seek the other orders sought in notice of motion filed on behalf of the plaintiff by Henao’s Lawyers, on 6 April, 2006.

17. The plaintiff asserts that Rabtrad Madang entered into the contracts with G. Litz, contracts to sell to it the properties listed above, without first following proper procedure under s.110 of the Act i.e. because the sales were a ‘major transaction’, that the sales should have been approved by special resolution. Mr Mai for the plaintiffs submit that such resolution was not passed by the shareholders which are the plaintiff and Andersons.

18. Mr Mai submits that by a circular resolution dated 13 December 2004, several of Rabtrad Madang’s directors, resolved to send a motion to its shareholders, being the plaintiff and Andersons, to approve the sale of the assets. What is before me as annexure ‘E’ to Florian Bahin’s affidavit is an illegible, indecipherable photocopy of a document which the plaintiff claims is a circular resolution, which has set out in it the "offer" and the "purchase price". I deal with this in detail, later. He submits that the net assets were valued at K4,484,119.00.

19. The plaintiff’s further submissions are that by the second defendants letter of 5 April 2005, to it (the plaintiff) the second defendant advised that 100 percent sale of Rabtrad Madang’s assets was now before their lawyers in accordance with the 13 December, 2004 circular resolution.

20. It submits that its board of directors however, resolved to obtain more information and an extension of time to be given to it to enable its preferred buyer, Madang Timbers Ltd to instead buy the second Defendant’s 50 percent interest.

21. It submits that on 23 August, 2005, the first defendant wrote to it confirming transfer of its dividends and requested that the plaintiff send a "sign-off" letter permitting the sale of the assets to the third defendant by 1 September, 2005. This letter is attached as annexure "O" to Florian Bahin’s affidavit. The plaintiff’s instructions are that Mr James Yali, Governor, did not sign the letter.

22. The plaintiff submits that it learnt in February 2006, that the first defendant was in the process of selling the subject assets to the third defendant without the plaintiff’s written consent or agreement.

23. A cheque of K1,658,99.00 representing 50 percent of the value of the assets and stock in trade sold to the third defendant was sent to the plaintiff which the plaintiff claims it rejected.

24. However, it is necessary that I point out that Ronald Ringuet, the general manager for Andersons, deposes in his affidavit sworn on 19 June, 2006 that the plaintiff negotiated the cheque of K1,638,990.00 on 14 June, 2006 and obtained payment.

Analysis of evidence and the Law

25. The issue is whether the interim injunctive orders should be set aside or should continue.

26. The plaintiff submits that, although it was a major shareholder of the first defendant, it was not properly consulted. He submits that is the requirement under s.110 and s.88 of the Act, that a special resolution must be passed before the sale of assets to the third defendant. Section 88 of the Act reads;

"88. Powers exercised by special resolution

(1) Notwithstanding the constitution of a company, when shareholders exercise a power to -

(a) adopt a constitution or, if it has one, alter or revoke the company’s constitution; or

(b) approve a change in the company’s name; or

(c) approve a major transaction; or

(d) approve an amalgamation of the company under s.234; or

(e) put the company into liquidation;

the power shall be exercised by special resolution.

(2) A special resolution pursuant to any of subsections (1) (a) to (d) (inclusive) can be rescinded only by a special resolution.

(3) A special resolution pursuant to subsection (1) (e) cannot be rescinded in any circumstances."

27. Mr Mai submits that the balance of convenience still lies in favour of the court extending the interim injunction and also because damages is not an adequate remedy. He submits that there is a need to continue to preserve the status quo of the parties until the substantive matters are dealt with.

28. He submits this relying on the facts before me that the process and procedures followed by the defendants are fundamentally flawed and contrary to the provisions of s.88, s.110 and s.112 of the Act.

29. Mr Frizzel for the defendants relies on s. 142 of the Act in submitting that the injunction should be set aside.

30. Section 142 of the Act empowers the court, on an application, to make an order restraining the company, or a director, from proceeding with conduct that would contravene the Constitution of the company or the Act. Section 142 of the Act reads;

31. I note that an application may be made by the company, a director, a shareholder or an "entitled person". No doubt restraining orders are preventative and an order may not be made in relation to conduct or a course of conduct that has been completed (s.142(4) of the Act). Thus, an applicant may, for example, restrain the company or the directors from holding a proposed meeting, or passing a proposed resolution, or executing a proposed transaction. But if what is contemplated is in breach of procedural or substantive rules and the act has been completed, the remedy cannot be invoked.

32. Section 18(1) of the Act provides that no act of the company is invalid merely because the company did not have the capacity to do the act. 33. However, s.18(2) of the Act, allows for applications for injunctions under s.142.

34. I note further that the Court is empowered to make interim orders in respect of any matter regarding which a final restraining order may be made (s.164(5) of the Act) and has power to order consequential relief (s.142 of the Act).

35. Section 142 (4) of the Act is clear, that restraining orders may be taken out by persons with standing as long as the acts complained of are not completed (my emphasis). In this case, the amended originating summons seeks several declaratory orders to declare the actions of the defendants as being in contravention of the company’s act and is therefore null and void. It is necessary that I set out in full the orders sought in the amended originating summons because it is those orders that determines whether the act/s complained of is/are completed or not and whether the injunction should remain or not. The amended originating summons reads:

"1. An order restraining the First, Second and Third Defendants and their servants or agents from dealing with the assets of the First Defendant listed in the Schedule to this Originating Summons in any way or manner whatsoever until further order of the court.

2. An order in the nature of a declaration that the circular resolution passed by the directors of the First Defendant dated 13th December 2004, is not a special resolution within the meaning of Section 110 of the Companies Act 1997.

3. In the alternative to the order sought in paragraph 2 above, an order in the nature of a declaration that the circular resolution passed by the directors of the First Defendant dated 13th December 2004 was passed in breach of Section 88 of the Companies Act 1997 in that the Plaintiff being one of the shareholders of the First Defendant was not given the opportunity to pass a special resolution to approve the sale of the assets to the Third Defendant.

4. Consequential upon the order in paragraph 2 being granted, an order that any agreement for the sale of the assets including the contracts to sale the assets listed in the schedule to this Originating Summons by the First Defendant to the Third Defendant are therefore null and void.

5. Consequential upon the order in paragraph 3 being granted, an order that any agreement for the sale of the assets including the contracts to sale the assets listed in the schedule to this Originating Summons by the First Defendant to the Third Defendant are therefore null and void.

6. An order in the nature of a declaration that the directors of the First Defendant breached Section 112 of the Companies Act 1997, by failing to act in good faith and in the best interest of the Plaintiff in the sale of the assets including the assets listed in the schedule to this Originating Summons.

7. An order that the First Defendant remains the owner of the assets listed in the schedule to this Originating Summons and all other assets including stock in trade that comprise the assets for sale referred to in the circular resolution dated 13th December 2004.

8. An order for the Defendants to pay the Plaintiff’s costs of the proceedings.

9. Any other orders the court deems fit".

36. Mr Frizzel submits that two (2) relevant cases are that of Richards v Price (1927) 2 KB at 7r which concerned interpretation of the word "landlord" under the Agriculture Holdings Act 1923 in determining whether and at what time in a contract the purchaser could require tenants to quit under that act. In Richards (supra), the court found "completion" meant the payment of purchase price or actual completion. Also, Richards (supra) refers to Brook v Champernowne (full citation not supplied) where, at pg. 91, Lord Atkin referred to "completion" as;

"(There is a) clear distinction between the date fixed for completion and actual completion (in a contract) just as there is a ...distinction made between when a debt is payable and when it is paid."

37. Mr Frizzel submits that when the third defendant paid the first defendant K4 million on 15 February, 2006, that the transaction was complete so far as the first and third defendants were concerned. He submits that any further acts which may be required under the contract for sale and purchase of land to be done by any party can be done by way of obtaining orders for specific performance under the contract.

38. Again, as to completion, Ronald Ringuet deposes in his affidavit sworn on 18 May, 2006, that all contracts for sale and purchase of land between the first defendant and the third defendant are in identical terms. Which means the clause on completion for all contracts of sale are the same i.e the contracts relating to the sale of other properties referred to in these reasons, and attached to the schedule to the amended originating summons, are the same. And this is clause 4 (a) (b) (c) (d). For the purposes of this case, I set out clause 4 (a) and (b) which reads;

"4. COMPLETION

(a) Completion of this Contract shall take place on a date agreed to by the parties’ Lawyers within 14 days from the date that the Vendors Lawyers notify the Purchaser’s Lawyers that the statutory approval referred to in Clause 17 hereof has been granted (‘the Completion Date’).

(b) On the Completion date

(i) the Purchaser shall pay to the Vendor’s Lawyers the balance of the Purchase Price particularized in item 8 of the Schedule by cash or bank cheque; and

(ii) the Vendor will deliver to the Purchaser the State Lease in respect of the Property (except as provided for in Clause 18) and a duly executed transfer of the Property and the Contract of Sale and under the Stamp Duties Act (chapter 117) and endorsed with Ministerial approval under section 128 of the Land Act 1996 and a Statutory Declaration to accompany documents lodged for registration required by the Registrar of Titles."

39. And according to Gerd Litz’s affidavit sworn on 19 May, 2006, the contracts for purchase of 9 portions of land were completed on 15 February 2006 by payment of K4 million. And the company’s (third defendants) bankers are now in possession of the title deeds and transfers (par. 2 and 3). Mr Litz deposes that he has had to take out a major loan to purchase these properties and to purchase the first defendants stock. But he has been prevented from operating the business because of the injunction, and as a result, the third defendant is suffering major losses.

40. Again, the affidavit of Ronald Ringuet sworn on 16 May, 2006, speaks for itself. At par. 28, he deposes to settlement having taken place between 15 October, 2005 to 15 February, 2006. The settlement statements are attached to the affidavit. And Mr Kiup, the Deputy Governor of the Madang Provincial Government and Mr Gosiba, the first defendants director, were given copies of a detailed statement outlining the proceeds from the sale of the first defendants assets. This was done at a board meeting on 21 February, 2006. (Par. 29).

41. Although the purchase of stock by the third defendant may not be complete, monies have already been paid which the plaintiff has received.

R. M. Stonhams text on ‘The law of Vendor and Purchaser’ states at par. 1613 that;

"1613. The meaning of "completion of the sale" in a contract for sale of land may vary with the context of the contract itself; but usually as regards contracts for sale of land completion of sale means the final settlement of the business, including the complete conveyance of the property, and the giving of possession and the payment of purchase money."

42. On the face of it, the contracts may have been breached by the plaintiff, because settlement has occurred, the plaintiffs have received the full purchase price and the Mortgagee Bank is now in possession of all the title deeds.

43. In this case, the interim injunction is preventing the third defendant purchaser from trading. And we have seen that the sale is complete. Section 142 (4) of the Act is clear, that an injunction will not be issued if the ‘conduct’ or ‘course of conduct’ is complete. Which then adds credence to the defendants submissions that there is nothing to preserve because the sale is complete. The third defendant must trade.

44. The plaintiff’s originating summons challenges the validity of the sale which on the face of it, is complete. The injunction prevents trading from continuing. Most importantly, the plaintiffs have received in excess of K4 m being the purchase price. Equity must prevail here because an injunction is an equitable remedy. The court cannot allow the injunction to continue when the plaintiff already has received the purchase price.

45. I find the issue of the special resolution can be argued at the substantive hearing. And because the originating summons and affidavit materials filed raise a lot of disputed issues, which cannot be property resolved unless pleaded, I order that the proceedings be converted to pleadings, done in accordance with O. 4 R. 35 of the NCR. And pursuant to O. 4 R. 35 (b), the plaintiff shall file a statement of claim pleading its claim.

ORDERS

46. These are the court’s formal orders:

(1) The interim injunction of 12 April, 2006 is set aside;

(2) The plaintiff shall file and serve a statement of claim within 21 days from today;

(3) Thereafter, the defendant shall file and serve a Defence and Cross-claim (if any) within 14 days;

(4) The plaintiff shall then file and serve a Reply (if any) within 14 days;

(5) The matter will be referred to the Listings Court when parties are in a position to do so.

(6) The defendants shall pay the plaintiffs costs of the application, to be assessed on the Undertaking as to Damages filed on 11 April, 2006, to be taxed if not agreed;

(7) All caveats placed on properties the subject of these proceedings, are now lifted;

(8) Time is abridged to time of settlement to take place forthwith.

________________________________
Warner Shand Lawyers: Lawyers for the Defendants
Henaos Lawyers: Lawyers for the Plaintiffs